Everything about investing in precious metals: is it worth investing in 2021, the pros and cons

Precious materials, like cars, whiskey, and currencies, can be an excellent investment for a private investor. All you need to do is understand the market, take into account its subtleties and choose the most suitable investment method. This article was created specifically to give the user such knowledge.

A little about precious metals

For 7,000 years, gold, silver, platinum and palladium have had economic value. Money made from these precious metals has been in circulation since the 5th century BC. until the very end of the 20th century.

How are things going in this direction now?
Over the past 5 years, Central banks have been actively building gold reserves: in 2018 alone, global purchases reached 600,000 tons. Gold prices have passed the point of no return – $1,300 per troy ounce – and are still rising. Forecast: $2000 by the end of 2021. According to technical parameters in industry and medicine, there are no substitutes for gold or silver, platinum or palladium. Financial advisors unanimously say: “Precious metals are a classic defensive asset that should be in your portfolio.” Is it so? To answer this question, you need to weigh the pros and cons.

Take the silver, bro

Popular wisdom that claims that silver is more expensive than gold is definitely disingenuous, but there is something in it. Because, despite the fact that it is the cheapest of the metal quartet and costs a mere $17 per ounce, long-term demand for it exceeds supply. But it still remains insufficient for the metal to begin to rise significantly in price. However, some analysts argue that reserves will run out in the coming decades if new large deposits are not discovered and production continues at the same pace, and then a golden time will come for silver. The forecast is based on a report from the United States Geological Survey (USGS) published this spring on the production of this metal in the world based on the results of 2021.

The French word l'argent can be translated as both "money" and "silver". And the literal translation of the word “bank” from Chinese is “silver house”.

This bread of the industry receives its unlimited karmic benefits for its accessibility to the largest number of potential investors precisely due to its low cost. Since silver dropped to $14 an ounce in 2015 from a high of $50 an ounce in 2011, it has been quietly rising, but to profit from it you have to wait a long time, if not trust it. this is for your children.

Silver is well known for its ups and downs. In Assyria and Babylon it was elevated to the rank of a sacred metal, declaring it a symbol of the Moon, and in the Middle Ages silver and its compounds were held in high esteem by alchemists. But wow - in the middle of the 13th century, silver became a traditional material for making tableware.

Advantages and disadvantages of investing in precious metals

I'll start with the positive:

1. Noble metals are self-sufficient and superior in value to unbacked paper money.
2. Liquid even in war. Therefore, even if all the currencies of the world depreciate and the stock markets collapse, they can always be sold.
3. Valued all over the world – a universal currency.
4. They have unique physical and chemical properties and retain their aesthetic appearance for a long time.

So, precious metals are rightly called defensive assets.

What then are their shortcomings?

1. You will have to wait for profit, at best – from 3 to 5 years.
2. In Russia, purchases, sales and other transactions with precious metals are subject to taxes.
3. The probability of a percentage increase is zero.
4. High purchase price.

And precious metals are sensitive to the monetary policy of the US Federal Reserve. When the dollar rises in price, all investors' investments are returned to securities. Risky.

Is it profitable or not?

Experts say that the gain can range from 100 to 400% percent. But you need to wait at least 3 years. And if the timing is not scary, then it’s time to learn everything about what types of investments exist in this direction.

Will the coming decade be inflationary?

According to Ronald Stoeferle and Mark J. Valek of Incrementum, the global paradigm of recent decades, with its repeated warnings about inflation, has steadily increased disinflation.

At a time when trust in government institutions is declining, populist policies may become the basis of a new inflationary paradigm. We suspect that monetary policy developments in 2021, coupled with the recent paradigm shift, could significantly increase inflation rates. Politicians and investors are generally reluctant to admit that this is possible. Decades of a deflationary paradigm have made them skeptical about a potential surge in inflation.

So what happens if you buy gold and silver and predicted inflation never occurs? Almost nothing will change. Gold protects against disinflation (as it was in the 2000s) and stagflation (as it was in the 1970s), hyperinflation (as it was now in Venezuela) and deflation (as it was in the 1930s). This is an investment for all seasons, for all bear market scenarios.

Types of investing in precious metals

Investing in precious metals is not just about buying bullion. You can also invest your funds in virtual metal, stocks and derivatives.

Precious metal bars

Bullions are purchased from banks with all certificates. The document contains information about authenticity and weight. It is safer to give this valuable property for safekeeping to a bank, because even a small scratch can turn the bullion into illiquid stock.

In our country, more than 200 institutions are ready to carry out transactions with precious metals. You cannot lose the certificate, otherwise they will refuse to buy it back, and they have every right.

Advantages:

1. Reliability of investment: you can store part of your capital in precious metals and thereby neutralize risks.
2. Guaranteed safety of savings: even after decades their value remains.
3. Opportunity to make a profit: with rising prices for precious metals, an investment can bring good income.

Here are the disadvantages of such a tool:

1. VAT 18%.
2. The bank does not charge interest on funds invested in precious bullion.
3. You need to pay regularly for storage.

Buying precious coins

Entry is more accessible; literally anyone can invest. However, this method also has its own nuances.

There are several types of precious coins:

• investment;
• memorable;
• collectible.

The value of investment coins is close to the value of the precious metals they contain. Collectible coins were in circulation earlier: coins of Tsarist Russia, Spanish doubloons, Venetian ducats, etc. Commemorative coins were printed in limited editions in connection with an event: in addition to the value of the precious metal, these coins also have numismatic value.

The advantages of such an investment are obvious:

1. Precious coins are more affordable than bullion.
2. This is a very safe investment.
3. If you know your way around numismatics and are willing to wait, collectible and commemorative coins can provide significant income.

Flaws:

1. The benefits from such an investment have to wait decades.
2. The bank does not charge interest on funds invested in precious coins.
3. You also have to pay for storing this property.

Unallocated metal bank account

This is an investment in a virtual precious metal. Compulsory medical insurance opens like a regular account. The client makes a deposit on which interest is charged. The purchase is made in rubles and converted into grams. Sales are in dollars per troy ounce. Income is generated when metal prices rise.

What are the advantages?

• no VAT;
• Compulsory medical insurance can be opened and closed at any time, including in the mobile application;
• additional profit: the bank charges interest.

However, there are also risks:

• no investment insurance;
• Large spreads are possible due to currency differences.

Purchasing compulsory health insurance on Moscow Exchange

Advantages:

1. The exchange does not charge spreads: transactions are carried out in rubles.
2. Free analytics and forecasts.
3. Precious metals exist “in electronic form” and do not need to be stored.
4. Profit is made on volatility.
5. There is a chance to earn more by using leverage.
6. There is no need to pay taxes.

There are high risks on the stock exchange, it is easy to lose all your investments. I recommend choosing an effective trading strategy with the help of a broker.

Buying shares of gold mining companies

This is another type of investment in the precious metals market. Ease of buying and selling, no need to pay taxes and worry about insurance are not the only advantages. The rate is growing rapidly, and you can make very good money from this. There is also the opportunity to receive high dividends.

However, this type of investment also has a drawback: a high entry threshold. Shares are sold in lots of at least 10 securities.

ETFs and mutual funds

Owning shares in these funds is tens of times cheaper than buying bullion and shares of gold miners. To be a member of mutual funds, you must pay commissions. And if in ETFs they amount to approximately 0.45% per annum, then in mutual funds they can reach up to 5%. ETFs are more profitable by all measures.

Mutual funds offer a great opportunity to diversify your investment portfolio.

Which way is better

To help you figure it out, I’ll give you a short summary.

So, for beginners with substantial funds, I recommend starting with an impersonal metal account. It is only important to thoroughly study all banking institutions and choose the most reliable one.

Now you are familiar with the types of investments in precious metals. It's time to talk in detail about the process itself!

How to start investing in gold or other precious metals?

There are the following options for purchasing precious metals:

• Buy bullion from a bank.
• Buy investment coins.
• Open a compulsory medical insurance (metal bank account).
• Resort to mutual funds.
• Participate in exchange trading.
• Purchase securities of mining companies.

It is important to first understand why you are investing in gold, silver or another metal. Do you want to make a profit or just save your savings? Each goal requires a specific investment strategy.

Step-by-step instructions for investing

These are the main steps that will most likely lead you to success:

1. Assess your financial situation. Take a realistic look at your capabilities: count your assets, additional income, compare them with liabilities. However, you shouldn’t be too careful: it’s important to invest your savings.
2. Formulate investment goals. What do you want to earn by investing your hard-earned money? Abstract investments “for luck” will not help you get benefits. Having achieved the goal, I recommend leaving the game: greed has never enriched anyone.
3. Choose an investment strategy. Investment strategies differ in terms of income generation and risk level. It all depends on the investor.
4. I strongly recommend seeking help from a professional financial advisor. He will help you develop and diversify your investment portfolio in accordance with your desired criteria.
5. Choose an investment method. I described the pros and cons of each method of investing in precious metals in the previous section.
6. Decide on the management company and investment program. First of all, you need to choose a reliable management company, bank or investment fund. Main criteria:

• Duration of existence on the market is from 10–15 years.
• Internet presence. It is imperative that the company has a functional website with useful content.
• How many investors trust the company?
• The largest number of proposals for investment instruments.

1. Submit an application and sign an agreement. This step includes a meeting with representatives of the management company for detailed consultation.
2. Invest and make a profit. You can monitor this process from your personal account.

Investment strategies

What types of strategies are there? How are they useful?

1. Speculative. It brings high income, but is also rightfully considered the most risky. It involves huge time and financial costs. After all, you will have to spend hours tracking price changes and making dozens of transactions. On daily transactions you can make a profit of up to 0.1%. But is the game worth the candle? This is a thorny path of victories and defeats.
2. Insurance against instability. Investing in physical precious metals is a safe haven where you can wait out financial problems. An investment without a high chance of receiving additional income, a protective asset.
3. A store of value. Any investor’s portfolio must have a mandatory share of 5–10% of capital for investing in precious metals for a long term. This game does not imply winning in the first 3–5 years, but it will definitely ensure a stable future.
4. Purchasing gold items. Not the best way to invest in precious metals. You won’t be able to sell jewelry without losing some of your investment. It’s better to buy jewelry for yourself, wear it with pleasure and pass it on from generation to generation.

Risks when investing in precious metals

Investments in precious metals are rightfully considered a reliable instrument. However, no one is immune from surprises. What should we be wary of when investing our money?

Investments in physical metal are completely safe. Unlike the same shares of companies, gold, silver, platinum, palladium are self-sufficient and have intrinsic value. They can't go bankrupt.

This market has huge potential. And all because of inflation, an unstable political situation, trade wars, and uprisings in the Middle East. While there is no certainty in relations between some states, the potential increase in cost is hundreds of percent.

However, in the case of compulsory medical insurance, there is some danger: the bank does not insure the investor’s funds.

The conclusion is this: the forecasts and prospects of the market are favorable, but the main task of minimizing risks when investing in precious metals is to guarantee the safety of capital in banking institutions.

Ways to minimize risks

I will list effective ways to protect your capital:

1. Diversify your investment portfolio. This means dividing all funds into several areas. If one does not bring profit, then the others, if not cover the loss, will at least save you from complete collapse.
2. You only need to invest available funds: losing this money will not lead to a decrease in your standard of living.
3. Choose reliable organizations for investment. There are a lot of scammers around who are ready to profit from other people's money. They can offer fabulous conditions, for example, investments at 100% per month (not even a year!). But in the end you can lose everything.

There are unstable companies that have not proven themselves in any way. Banks that will burst in the next crisis. It is important to study everything thoroughly. If your knowledge is not enough, use the services of financial advisors.

Should I pay for platinum?

Investing in platinum is perhaps the most questionable.

In the 19th century, meter and kilogram standards were made from an alloy of platinum and iridium, based on which national standards of different countries were made.

Over the past decade, platinum has demonstrated the most enchanting ups and hard landings. Having reached its all-time high in 2008, when quotes exceeded $2,200 per ounce, platinum became the most expensive metal on our list at that time. In the same year, it collapsed to $800 and recovered only in 2011, reaching a price mark of 1800 American rubles, and then, again touching its $800 bottom in 2015, it reached the level of today, when an ounce costs 935 dollars. Therefore, despite the still fairly high cost, its investment attractiveness is lower than others.

Cost is tied to many factors, and therefore responds very vividly to changes in the state of the economy. For example, platinum is widely used in catalysts for diesel vehicles. At the end of the last century, there was a boom in sales of diesel cars in Europe - promoting the environmental friendliness of this type of transport yielded excellent results. But in 2015, a scandal occurred: it turned out that Volkswagen, using a special system, greatly underestimated the amount of harmful substances in exhaust gases. Diesel fell out of favor, Europeans turned their gaze to gasoline engines.

The metal was given its name by the Spanish conquistadors in the mid-16th century. Since the metal reminded them of silver, it received a name that literally translates as “little silver”, “little silver”. Because of its refractoriness, platinum was valued even half as much as its counterpart that gave it its name.

Tips on how to get maximum profit

Here's a quick rundown of how to get the most out of your investment:

1. There is no point in buying physical precious metal for the short term. You can get a loss instead of a win, because bars and coins have low liquidity.
2. To play on the stock exchange, you need the advice of professionals and their intuition.
3. According to investor reviews, investing in compulsory medical insurance is not very profitable, but it is an effective investment in the future.
4. It is possible to get a good income from bullion after 10 years or more.
5. Investments in precious metals for up to 3 years make sense if there are forecasts for an increase in gold prices.
6. If a crisis is looming, precious metals are one of the best defensive assets.

You and I are palladizing

Palladium is among the leaders in the popularity of investments in it by our fellow citizens. However, God himself commanded that its largest deposits are located in Russia.

Before the discovery of palladium as a precious metal, the word "palladium" meant objects that mystically confer protection and security.

Until the beginning of the 21st century, an ounce of palladium was much cheaper, and the price chart was almost uniform, but over the past two decades there have been quite sharp ups and downs. The worst years for palladium were 2003 and 2008, when it fell below $200 per ounce. The second black streak took off - today it is the most expensive metal on the entire list; this year it reached its historical maximum, stopping at $1,588 per ounce.

Palladium pricing directly depends on crises in the stock market, since about 80% is involved in the auto industry, which is tightly integrated into the state of the economy. The metal is used in catalytic converters for cars with gasoline engines: as industry needs grow, the price of the metal rises.

Alternatives

Every investment expert will second me in recommending not to put all your eggs in one basket.

To guarantee security and increase the profitability of the portfolio, it is recommended to invest additionally:

1. Indices with high returns and wide popularity.
2. In shares of large, steadily growing organizations.
3. In real estate, purchasing objects in the early stages of construction.
4. Collectibles: paintings, antiques, for example.

Alternatives will insure the investor during unexpected downturns.

Reviews

Many people doubt whether the prospects for the gold market are so rosy?

No one can predict the future 100%. We only know that since the summer of 2021, gold prices have been trending upward. Moreover: the most authoritative analysts and experts predicted in 2018 that the price per troy ounce would reach $1,400, but now we see the chart approaching $1,500. Of course, minor regressions are allowed, that's par for the course.

Investing in physical precious metals is an investment with a long-term outlook. The profit is high, but it must wait.

The waiting period for profit can be from 3 to 5 years, sometimes, especially in the case of collectible and commemorative coins, the period stretches for decades. Things are a little simpler with investments in virtual metal, stocks and derivatives. But the level of risk in this case increases.

Helpful commentary on investing in precious coins. Helps you understand what numismatic value is and why it is profitable.

There are many advantages to investing in precious coins, but there are also disadvantages. For example, it is not so easy to sell them to a bank.